European Union finance ministers agreed today on a package to form super-watchdogs that will police banks following the economic crisis, an EU diplomat directly involved in the talks said.
The EU wants to establish three pan-European watchdogs to keep tabs on banks, insurers and trading exchanges as well as creating a Frankfurt-based agency to watch for bigger systemic risks to the economy.
"There is a deal on supervision," the diplomat said. "This agreement will be formally confirmed during a formal session in the early afternoon."
On banks, the ministers were examining an EU blueprint that would create a London-based body as the ultimate arbiter, which would tackle problems it judges national watchdogs have ignored.
Although there is agreement that existing supervisors failed to head off the worst financial crisis in a generation, the proposed shake-up of the policing of financial services has divided opinion.
Britain and France, whose relations are already strained since the appointment of a Frenchman to oversee the EU overhaul of financial services, had different visions for the watchdogs.
France favours giving them wide-ranging powers. Germany and Britain feared this could create overbearing regulators that would sideline governments and order lenders what to do.
Britain has mounted the stiffest opposition. Suspicious that a Paris-driven agenda lies behind an EU regulatory overhaul, London wanted to water down proposed powers, leaving the new watchdogs mainly to draft and police pan-European standards for regulation.
During today's negotiations, one British diplomat told reporters outstanding disagreement centred on how to appeal a decision by one of the EU super-watchdogs that could force a national government to spend taxpayer money.
French finance minister Christine Lagarde barely disguised her frustration with British opposition on the eve of the talks. "Certain countries, I am thinking of Great Britain, would rather that the European supervision authorities have limited powers," she told reporters in Brussels yesterday.
"The real question is whether the (pan-) European authority gets the power to prescribe and make recommendations without getting bogged down in multiple appeals that could freeze the process," she said.
"If that's the case then it's not worth the bother. We may as well just go fishing."
In a letter published in the London
Timesnewspaper today, British finance minister Alistair Darling warned against giving the new supervisory bodies too much influence, by allowing them, for example, a say over individual companies. "We must resist measures, however superficially alluring, that could undermine the effective functioning of our cherished single market," he wrote.
Despite concessions, the new watchdogs are set to give more say than ever to European institutions over an industry blamed by many for triggering the economic slump.
The European Parliament has a say in finalising the law, which could see the watchdogs up and running by the end of 2010.